2021 (1) TMI 1282 - HC - Income Tax

Notional loss of Foreign Exchange derivative - HELD THAT - Question Nos. 1 and 2 were decided against the Revenue by the Income Tax Appellate Tribunal passed 2018 (2) TMI 1806 - ITAT KOLKATA for the Assessment Year 2010-11. Monetary limit for filing appeals before the High Court - HELD THAT - In view of the circular No.17/2019 F.No.279/Misc.142/2007-ITJ(Pt.) dated August 8, 2019 issued by Government of India, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes Judicial Section, whereby the monetary limit for filing appeals before the High Court has been increased to ₹1 crore and the tax effect in the present being less than that, he may be permitted to withdraw the present appeal. Revenue is allowed.

Summary

Issues:
1. Condonation of delay in filing the appeal.
2. Interpretation of CBDT Instruction No. 3/2010 on Foreign Exchange derivative losses.
3. Allowability of Marked to Market loss under section 37(1) of the Income Tax Act, 1961.
4. Consideration of additional depreciation under the third proviso to section 32(1)(ii).
5. Application of the Third proviso of section 32(1)(ii) of the Income Tax Act, 1961.

Condonation of Delay:
The appellant challenged an order by the Income Tax Appellate Tribunal for the assessment year 2012-13, seeking condonation of a 497-day delay in filing the appeal. The appellant raised substantial questions of law regarding the treatment of Foreign Exchange derivative losses, Marked to Market loss, and additional depreciation. The Tribunal had previously decided against the Revenue on similar issues for the assessment year 2010-11. However, the appeal was admitted only for issues related to Section 14A of the Income Tax Act, 1961, and Rule 8D(2)(ii) of the Income Tax Rules, based on earlier final judgments. The tax effect for the remaining questions was less than Rs.1 crore, meeting the increased monetary limit for filing appeals before the High Court. The appellant's counsel was allowed to withdraw the appeal while keeping the legal issues open.

CBDT Instruction No. 3/2010 - Foreign Exchange Derivative Losses:
One of the substantial questions raised was whether the Tribunal erred in not considering CBDT Instruction No. 3/2010, which disallows the deduction of notional loss of Foreign Exchange derivatives from total income. The appellant argued that the Tribunal allowed relief on Marked to Market loss contrary to the instruction. However, the Tribunal had previously decided against the Revenue on similar issues for the assessment year 2010-11, following final judgments by the Supreme Court. The appeal was admitted only for specific issues, and the tax effect for this question was less than the filing limit, leading to the withdrawal of the appeal.

Marked to Market Loss under Section 37(1):
Another issue raised was the deletion of additions made by the Assessing Officer on Marked to Market loss, which the appellant argued contravened section 37(1) of the Income Tax Act, 1961. The Tribunal's decision was based on earlier final judgments and the application of relevant provisions. The tax effect for this issue was below the filing limit, allowing the appellant's counsel to withdraw the appeal while keeping the legal issue open for future consideration.

Additional Depreciation under Section 32(1)(ii):
The appellant questioned the Tribunal's decision to allow relief on additional depreciation without considering the third proviso to section 32(1)(ii), effective from April 1, 2016. The appellant argued that the Tribunal did not apply the test of the Third proviso correctly. However, due to the tax effect being below the filing limit and the application of previous judgments, the appellant's counsel was permitted to withdraw the appeal while preserving the legal issue for future review.

Application of Third Proviso of Section 32(1)(ii):
The final issue raised was whether the Tribunal correctly applied the Third proviso of section 32(1)(ii) of the Income Tax Act, 1961. The appellant contended that the Tribunal's decision was not in accordance with the provisions. However, due to the tax effect being below the filing limit and the application of earlier judgments, the appellant's counsel was allowed to withdraw the appeal while leaving the legal issue open for further consideration.